PolicyLens

Conservative - Energy tax

Repeal the Energy Profits Levy

Remove the additional oil and gas profits levy before the current expiry date.

Last updated: May 2026.

Read the policy-specific methodology note

Revenue baseline

The current Energy Profits Levy is set at 38 percent and extended to 2030. Repeal would reduce receipts, but the exact cost depends heavily on oil and gas prices and investment response.

  • Oil and gas receipts are volatile.
  • Investment allowances affect behaviour.
  • Consumers do not automatically see lower bills.

Core trade-offs

Producers gain from lower tax on North Sea profits, which may support investment in mature fields. The Exchequer loses volatile but material receipts, and household energy bills are unlikely to fall directly.

  • Oil and gas producers gain directly.
  • Taxpayers lose levy receipts.
  • Investment response is uncertain.

Fiscal impact by 2028-29

+GBP 0.5bn to +GBP 5.0bn. Central estimate: +GBP 2.2bn.

  • Positive numbers mean net fiscal cost; negative numbers mean Exchequer savings.
  • Main cost is lost levy receipts.
  • Investment may recover some corporation-tax receipts.
  • Commodity prices dominate the range.
  • This is not an official costing.

Economic impact by 2028-29

  • Jobs: Could support North Sea jobs at the margin; long-run basin decline remains.
  • Wages: Sector wages may be supported; no broad wage effect expected.
  • Prices: Little direct effect on UK energy bills, which follow international prices.
  • GDP / productivity: May support extraction investment, but raises fossil-fuel lock-in risk.

Assessment

Repeal is a clear tax cut for oil and gas producers. It may support some investment, but the fiscal cost is volatile and the policy does not directly lower household energy prices under internationally set oil and gas markets.

Confidence: Medium-low. Levy parameters are clear; receipts depend on commodity prices and investment timing.

Main risks

  • Fiscal volatility: Receipts swing with oil and gas prices, making the cost hard to predict.
  • Limited bill impact: Producer-tax cuts do not mechanically reduce household energy prices.
  • Transition risk: Lower fossil taxation can slow transition incentives and increase climate-policy tension.

Safeguards

  • Use a price-contingent sunset, not unconditional repeal.
  • Require investment commitments for relief.
  • Publish receipts under oil-price scenarios.

Academic evidence

Mirrlees and review team, Institute for Fiscal Studies and Oxford University Press, 2011

Tax design principles

Efficient tax systems use broad bases, coherent rates and few arbitrary reliefs.

Frames the efficiency trade-off when tax cuts are not matched by credible funding.

Tax by Design: The Mirrlees Review (2011)

UK government evidence

HM Treasury and HMRC, 2024

Energy Profits Levy reforms

The note raises the levy to 38%, extends it and removes the investment allowance.

Defines the oil-and-gas tax baseline.

Energy Profits Levy: reforms 2024 (2024)

Office for Budget Responsibility, 2024

OBR October 2024 forecast

The OBR scores fuel-duty, EPL and environmental-receipts measures and discusses oil-and-gas uncertainty.

Anchors energy and motoring estimates.

Economic and fiscal outlook: October 2024 (2024)

Office for Budget Responsibility, 2026

OBR fiscal forecast

The OBR forecast sets the macro, borrowing and receipts baseline used for broad fiscal context.

Prevents treating tax cuts or spending changes as self-financing.

Economic and fiscal outlook: March 2026 (2026)

Sources

Other Conservative policies

PolicyLens estimates are illustrative and should not be treated as official costings.